A loan agreement is concluded between the project company (borrower) and the lenders. The loan agreement governs the relationship between lenders and borrowers. It determines the basis on which the loan can be taken out and repaid and includes the usual provisions contained in a business loan agreement. It also includes additional clauses to cover the specific requirements of project and project documents. As a general rule, financiers require that a direct relationship be established between itself and the contracting party, obtained through the application of a tripartite act (sometimes called an act of approval, direct agreement or ancillary agreement). The trilateral act describes the circumstances under which financiers can “intervene” in project contracts to nullify a possible default. In general, an assignment unit is created for each project, which protects the other assets of a project sponsor from the adverse effects of a project failure. As an ad hoc entity, the project company has no assets other than the project. Capital commitments from the owners of the project company are sometimes necessary to guarantee the financial scope of the project or to ensure the commitment of the sponsors to the funders.
Project financing is often more complex than alternative funding methods. Traditionally, project financing has been used most in the mining, transportation, telecommunications and energy industries, as well as in sports and entertainment facilities. Simply put, the banks say that if the borrower of the project company does not have enough money to repay the loan and interest at any time during the term of the loan — say, five to seven years, even during the operating period well after the end of the project — the sponsor must go up and help pay. In fact, if the borrower does not pay, the sponsor must pay. The Shareholders` Pact (SHA) is an agreement between the promoters for the creation of an ad hoc entity (SPC) with regard to the development of projects. It is the most fundamental structure held by sponsors in a project financing operation. This is an agreement between the sponsors and is interested in: an operating and maintenance agreement (O-M) is an agreement between the project company and the operator.